SHENZHEN -- China's central bank has stepped up formulating a guideline for regulation of the country's booming Internet financial sector, an official source close to the matter has said.

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Joint efforts are being made between the People's Bank of China (PBOC) and regulators for the top-down policy that will lay the foundation of the regulatory system, PBOC official Mu Huaipeng said on Thursday during an IT summit held in south China's Shenzhen city.

Mu said preparations are also being made for a Chinese Internet finance association, which will be an industrial body to strengthen the self-discipline of Internet firms involved in financial business.

The PBOC has been playing a tough role when monitoring online finance. It suspended payments via code scanning and virtual credit cards in March. According to reports, it was also mulling further restrictions on third-party online payments, until being persuaded against such a move by strong market opposition.

Mu said regulators should not implement rigid regulation, but leave room for the sector to grow, while still holding that monitoring is necessary as risks plaguing traditional financial institutions also exist in cyberspace.

"The increased efforts to defend against risks, protect investors and better serve the real economy run parallel with policies to encourage innovation," he said.

China has not enacted specific rules covering the online activities of financial institutions, which may "overstep the boundary" when exploring the unplowed territory of cyberspace and introduce new products without adequate safety testing, the official added.